a blog about investing
Stocks worldwide have experienced a downdraft since October. All the gains so painstakingly made thus far in 2018 have been erased. Volatility has battered markets with all the severity of a Nor’easter. Next year may prove to be a continuation of the same. read more…
There was a time, not long ago, when most Americans would answer that question in the affirmative without much thought. It was one of those “truisms” that we didn’t give much thought. But today, many experts are debating that answer.
Back in the day, after WW II, our military prowess, (aided by the development of the atomic bomb) was unquestioned throughout the world. Growing up, it was never a question of spending on defense for me, it was simply how much. Republicans wanted more, Democrats wanted less. Today, not only is the amount of spending crucial but also its predictability and even more importantly, what those billions are spent on.
The Pentagon’s National Defense Strategy was issued in January. Like all of their tomes before, it is heavy reading and fairly boring but this time around things were different. The United States Institute of Peace, a federal institution, issued a 98-page report rebutting some of the assumptions made about peacetime competition or wartime conflict.
The authors focused primarily on our top competitors for global hegemony, Russia and China, but also included recognized threats in Europe, Asia, portions of the Middle East. The report authored by a panel of former security officials and military experts did not mince words.
“The U.S. military could suffer unacceptably high casualties and loss of major capital assets in its next conflict. It might struggle to win or perhaps lose, a war against China and Russia. The United Sates is particularly at risk of being overwhelmed should its military be forced to fight on two or more fronts simultaneously.”
Unlike WW II, where we did fight successfully on two fronts, on future battlefields we will face enemies that have developed extremely lethal weaponry, outnumber us, will be fighting on their own turf and will get to hit us first. In addition, it would be a big mistake to assume that our enemies would confine their attacks to the war theatre. America and its military should expect devastating kinetic, cyber or other types of attacks (biological or otherwise) while fighting us abroad.
Until recently most of our conflicts were fought with America enjoying total air dominance, our logistics base (supply lines) were safe and secure from interdiction. Rarely, if ever, did we face long-range fire. About the worst anti-armor our tanks and Humvees faced were rocket-propelled grenades. We also owned the field when it came to unimpeded communications.
What our soldiers can expect to face in the next war will be advanced, tandem warhead anti-tank guided missiles, precision guided artillery projectiles, long-range guns, armed drones and air-delivered weapons. The skies will no longer be exclusively ours as well. By now you are getting the picture.
Warfare is changing but the report says we are not keeping up. The proliferation of advanced technology, things like hypersonic and artificial intelligence that our enemies are applying to weaponry and soldiers on a mass scale are quickly eroding U.S. advantages and creating new vulnerabilities in a military that has relied for far too long on more ships, tanks and aircraft carriers.
Not only must the actual spending be increased but it should be allocated to those areas where we are behind the competition. The report suggested a 3-5% increase (above inflation) for the Department of Defense with areas such as cyber security and new technologies taking the brunt of the increase. Of course, that will cause lots of problems in Congress where “pork” has been a tradition among legislators when voting for the defense budget roll s around.
Year after year, politicians allocate the lion’s share of defense spending to their states, which manufacture all that traditional and increasingly obsolete hardware. That would need to change but don’t hold your breath. Those jobs (and votes) are what make Washington the swamp that it is.
This Saturday evening, Donald Trump and Xi Jinping will sit down to dinner in Buenos Aires at the G-20 conference. Investors are holding their breath, hoping that the two might come to some agreement that could lower tensions and avert a full-out trade war between the U.S. and China. read more…
Stocks are in the process of consolidating after the big gains over the last week or so. So far, the October sell-off has led to a recovery of about half of what was lost. In the two months ahead, we should see even further gains. read more…
True to form, the opposition party regained control of the House, while the ruling party, in this case the GOP, retained control of the Senate. If history is any guide, this means that little in the way of legislation will be coming out of Congress for the next two years. read more…
It is a good time to take a reality check on how aggressively you are invested. The 6.9% decline in the S&P 500 Index over October was gut-wrenching. But entirely within the realm of probability given the historical data. Here are some questions to ask. read more…
It happened like clockwork. Earlier in the week, all three main U.S. averages re-tested their lows and then proceeded to bounce back, only to give it all back. That’s what happens during corrections, but it is not over yet. Afterall, it is October.
Readers will recall that last week I wrote that nine out of ten times markets will re-test their recent lows. Naturally, this is more of an art than a science, so prices can bottom somewhat above or below those lows. In this case, the Dow hit its lowest level in four months. The S&P 500 Index slipped below its recent lows while NASDAQ got hit the worst, wracking up a total 10% decline from its highs.
This is how it should be, since all year long the markets have been led by the advances in the tech-heavy NASDAQ. And by the way, there was no new news on Tuesday. There was no event that anyone can point to for the decline. That also makes total sense when you understand that this entire pullback has been technically-driven.
And it isn’t over yet. We still have five days left in October and another six until the mid-term elections. The way the market has been acting this week, we could continue to see 1-2 percentage point-sized swings daily.
The fuel for these pyrotechnics is earnings results. Remember my warnings that earnings this quarter, although good, would not be ‘as good’ as the past few quarterly results? As an example, Thursday evening, two of the big FANG stocks, Amazon and Google, reported after the close. Their top line revenue growth was less than expected, which came as a bit of a surprise to investors. No never mind that profits beat expectations, since these days profits can be manipulated easily by simply buying back additional shares.
Index futures Thursday night dropped like a rock as a result, and Friday morning the Dow dropped 300 points on the opening. Earlier in the week, companies like Caterpillar and Boeing reported. Their announcements were enough to move the markets (up in the case of Boeing, and down on Caterpillar’s results). Why, you might ask, do individual company results suddenly have the power to move markets like this?
It’s all about expectations. Investors have been fretting about Trump’s trade war all year. So far, the fallout has only impacted a few areas. Farming, for one, and maybe some companies in the steel business. The fear is that over time more and more companies will pull back investments, lose sales, or be damaged by these tariffs. And what may happen to one, may happen to all.
If you believed, as I do, that this is an inaccurate and rather simplistic view of the world, than the fact that one company might see some fallout if tariffs are imposed does not warrant taking an entire sector, or in this case, an entire market down with it. However, markets are not rational at times. This is one of those times.
Friday, it was announced that the country’s economy grew by 3.5% in the third quarter, which was faster than expected. Fearful investors barely paid attention to the news. That should come as no surprise. You can search to doomsday for a solid fundamental reason why we are experiencing this sell-off. You won’t find one. Bottom line: the markets were overbought and in need of a healthy pullback. Don’t over think this one and stay invested.
Forget the stock market, internet, and whatever you might think is worth investing in. The good old college textbook beats them all. That boring first semester hard cover and similar books have risen over 1,000 percent in price since 1977. read more…
It never fails. A couple weeks of declining markets and everybody becomes bearish. “New bear market unfolding,” “An end has a start,” or “More evidence of a global bear market” are just some of the headlines I’ve read in the past week. How did we go from bullish to bearish in such a short time period? read more…
Student loans have now become the second-largest pile of consumer borrowing, after home mortgages. What’s worse, it is the fastest growing slice of American household debt and shows no sign of slowing down. read more…